Using The Law To Achieve Boardroom Diversity (And Redistribute Power)

Imitation, they say, is the sincerest form of flattery. But when it comes to corporate norms, geographical differences are often touted as good reason for anomalies. As far as diversity on the boards of publicly listed companies across the globe is concerned, it is clear the law has been used in two ways: through mandatory quotas or required disclosure.

Now, a book entitled Challenging Boardroom Homogeneity, by Aaron Dhir, published later this month (May 21, 2015) by Cambridge University Press transcends geographies and studies both approaches, looking at the reality and experience of Norway's quota system in its European context, and its implications for the United States.

In an article published this week in theAtlantic, Professor Dhir discusses "What Norway Can Teach The U.S About Getting More Women Into Boardrooms." In Norway, which has had a compulsory quota on gender for all publicly listed firms since 2008, both male and female corporate directors interviewed by him for this book say that "the heterogeneity brought about by quotas has enhanced the quality of boardroom deliberations and overall corporate governance."

"Most of the Norwegian directors I interviewed were initially opposed to quotas," Professor Dhir tells me. "But after seeing the law in action, and directly experiencing its effects, they came to endorse it." "A significant degree of the support stemmed from the view that the law was necessary to diversify boards in a meaningful way," he adds.

In Europe, the spectre of "quotas" has suffered a lot of negative press, not least in the U.K., where the government and business appear to have entered a silent pact on making it clear that the "voluntary" approach on gender diversity works, and is infinitely preferable. The U.K. has shown significant progress in its appointment of female non-executive directors to boardrooms since a government-inspired review by Lord Davies of Abersoch in February 2011, more than four years ago.

But after four years of "hype" and the talking-up of women in the boardroom, there is now a real danger that momentum for women in senior positions in business: both as independent directors in the boardroom and as executive directors, has stalled.

Going back to the interviews in Norway, Professor Dhir stresses: "My interviewees emphasized the range of perspectives and experiences that women bring to the board, as well as the value of their independence and 'outsider' status." He points out that he often heard about a greater propensity among women to engage in "more rigorous deliberations, risk assessment and monitoring." Gender diversity, it seems, had positively affected a firm's corporate governance.

"Commentators frequently claim that quotas will stigmatize and marginalize their beneficiaries," says Professor Dhir. But in reality, he suggests that "by mandating gender balance (in Norway), the law made marginalization difficult, if not impossible."

Most importantly perhaps, his book comes to a critical conclusion on the issue of the need for gender diversity in its widest sense.

"This quota has had a broader social effect by redistributing power in Norwegian society," he tells me. "It forced companies to extend their searches for new directors beyond the usual places."

As one of the board directors he interviewed in Norway told him, quotas compelled companies to expand their "one-dimensional picture of what [a] board member should be."

"As a result, the very social meaning of high-level leadership has changed and access to the upper echelons of the corporation has been democratized," he says.

In the U.S., the SEC rule requires firms to report on whether they consider "diversity" in appointments, but does not elaborate on how they need to do it. While all companies may technically comply with the rule, only about half define diversity in terms of gender, race or ethnicity, he suggests.

This book should provide material for some serious thinking on that front.

Challenging Boardroom Homogeneity by Aaron Dhir, published by Cambridge University Press May 2015